US stocks edge lower as Wall Street digests earnings, materials lag

July 21,2016 19:10

"These numbers are confirming the earning bounce back we were expecting, given flat oil prices and a flat U.S. dollar," J.P. Morgan's Kelly said. "What we're getting is confirmation that the economy is still growing steadily and earnings are rebounding.".and more »

U.S. stocks moved lower Thursday as Wall Street kept an eye on mixed earnings and upbeat economic data following a week of record highs for the Dow and S&P.

The Dow Jones industrial average fell slightly as Intel weighed and Caterpillar had the most positive impact. The S&P 500 was also down fractionally, and health care and telecom were the only sectors in the green. The Nasdaq composite fell roughly 9 points.

The number of Americans filing for unemployment benefits fell to a three-month low last week, in a sign that the labor market is stabilizing.

"This is the first indication that job growth in July was also pretty good," said David Kelly, chief global strategist at J.P. Morgan Asset Management. "The economic narrative remains the same; the economy isn't growing fast but it's growing fast enough to cause the labor market to tighten."

Initial claims for state unemployment benefits fell by 1,000 to a seasonally adjusted 253,000, the Labor Department said Thursday. Economists polled by Reuters expected claims to rise to 265,000.

Claims are near a 43-year low, hit in mid-April, Reuters reported.

"The better jobs number was a fundamental catalyst when you look at what happened in the market after," said Liz Ann Sonders, chief investment strategist and senior vice president at Charles Schwab. Sonders highlighted the June nonfarm payroll number, which exceeded expectations with a headline figure of 287,000.

"This market rally had more to do with economic sentiment than anything," she said.

The Dow Jones industrial average closed higher Wednesday with nine consecutive days of gains for the first time since 2013. The S&P 500 closed at a new record level and the Nasdaq composite had its highest close of the year.

Quarterly results came in mixed Thursday.

General Motors posted a record second-quarter profit Thursday, sending shares up more than 3 percent. The stock is pacing for its twelfth consecutive positive day for the first time ever.

Ebay spiked more than 10 percent for its best daily performance since October 2015, after posting earnings a penny per share above estimates. The online retailer raised its full-year sales forecast and announced a $2.5 billion stock buyback program.

Biogen helped boost the Nasdaq and S&P, with the stock up more than 6 percent after posting positive results.

Intel fell more than 3.5 percent after it beat analysts' expectations for earnings on Wednesday, but posted revenues came in lower than expected. Fellow chipmaker Qualcomm beat Wall Street expectations and issued strong forward guidance, sending the stock up nearly 7 percent.

Bank results continued to surprise this week, with Morgan Stanley reporting earnings of 75 cents per share versus consensus expectations of 59 cents, according to Thomson Reuters. Morgan Stanley joined Goldman Sachs, Citigroup, JPMorgan Chase, and Bank of America on the list of U.S. financial institutions topping second-quarter profit forecasts.

"These numbers are confirming the earning bounce back we were expecting, given flat oil prices and a flat U.S. dollar," J.P. Morgan's Kelly said. "What we're getting is confirmation that the economy is still growing steadily and earnings are rebounding."

Part of the recent equity rally, Kelly said, is due to record-low interest rates around the world. Investors are moving to U.S. stocks in search of any sort of yield.

"Stocks are the prettiest house in a pretty burnt out neighborhood," Kelly said.

European stocks moved lower after the European Central Bank left key interest rates unchanged Thursday. The non-move was widely expected but further policy stimulus from global central banks is thought to be coming in the months following June's Brexit vote.

ECB President Mario Draghi said at a press conference that the central bank was ready to act if necessary but officials wanted to "reassess the underlying macroeconomic conditions" and data before making a decision.

The pan-European STOXX 600 closed 0.07 percent lower after fluctuating throughout the trading day. European travel stocks went lower, led by Lufthansa, which cut its full-year profit target as bookings declined due to terrorist attacks and economic uncertainty, the company said. Shares of the airline fell 8 percent after the news.

The German DAX closed roughly 14 points higher, the U.K.'s FTSE 100 ended half a percent, and France's CAC finished the day down 0.08 percent.

Then yen hit new lows after news that Tokyo was considering a 20 trillion yen package of stimulus to bolster the economy. The currency later recovered 1 percent as Bank of Japan Governor Haruhiko Kuroda told the BBC radio that there is no need for "helicopter money" to fight inflation, and the central bank already had mechanisms in place to ease further if needed.

Although the interview was published Thursday, the BBC said the it was recorded in June. The yen gained 1 percent against the dollar after Kuroda's comments, trading near 106.25 yen.

The dollar was weaker against a basket of currencies after hitting four-month highs Wednesday.

The euro hit a high of $1.1058 against the dollar before losing most of the gains in choppy trade. The euro traded near $1.10, while the British pound fell to $1.32.

"The market can handle a little strength in the dollar but not if it starts to impact other areas that cause financial conditions to tighten," said Sonders of Charlies Schwab. "We've been in this policy loop, at the heart of it is what the dollar is doing."

Oil was slightly lower, with WTI trading near $45 after hitting a two-month intraday low a day earlier. Brent crude futures were just below $47.